Corporate Bonds Outperform Dividend Yields
In the current market environment, we believe that corporate bonds from issuers with high credit ratings continue to offer the more attractive opportunity to secure predictable, steady returns over the medium term. The average yield on European corporate bonds (BBB rating) currently stands at 3.8%, delivering an additional return of 75 basis points compared to the EuroStoxx 50’s dividend yield of 3.05% (as of May 7, 2024).
Corporate Bonds with a Yield Advantage Over Stocks
Secure Returns Through Dividends? Negative Momentum Among European Companies
So far, about 75% of the companies in the EuroStoxx 50 have reported their results for the first quarter of 2024, which overall reveal a negative trend compared to the previous year. Both revenue and earnings for the companies listed in the index have fallen by an average of 2.5% and 11.4%, respectively.
This means that companies must grow, improve their margins through price increases, or cut costs if they wish to maintain their current dividend payments in the future. From our fundamental perspective, it remains uncertain whether the interest rate cut by the European Central Bank (ECB)—which many market participants anticipate—will have a positive effect in the short term.
A portfolio consisting of European investment-grade corporate bonds currently offers historically high yields compared to the European stock market. While dividend payments depend on current business results, bond coupon payments are contractually fixed. In our view, these offer protection against potential setbacks in a macroeconomic and geopolitical environment that remains uncertain.
With the HAGIM CIO Series (Credit Income Opportunities), we focus on solutions designed to generate stable and predictable income for your individual income management.
Risks
Price losses due to rising yields and/or increased risk premiums are possible. Even a total loss cannot be ruled out. Past performance is not indicative of future results, nor can future performance be guaranteed.
Disclaimer
This marketing communication, as defined by the Securities Trading Act, is provided solely for informational purposes and should not be construed as personal investment advice, a recommendation, or a solicitation to buy, sell, or hold a financial instrument, or to adopt an investment strategy.
The opinions and statements contained in this document reflect the current assessment as of the date of publication. The information provided does not constitute a complete analysis of all material facts relating to a country, region, or market.
Any statements regarding market developments, returns, price gains, or other capital appreciation, as well as risk metrics, are merely forecasts for which we assume no liability. In particular, past performance, simulations, or forecasts are not a reliable indicator of future performance. Asset values may rise or fall.
All information has been carefully compiled, in some cases based on information from third parties. Individual pieces of information may, in particular due to the passage of time, changes in the law, or current market developments, prove to be no longer accurate—or no longer fully accurate—even at short notice, and may change at any time without prior notice.
Therefore, no warranty is provided as to the accuracy, completeness, or timeliness of any information. The information is based on our assessment of the current legal and tax situation. To the extent that tax or legal matters are addressed, the recipient should discuss these with their tax advisor or attorney.
Investments in financial instruments involve both opportunities and risks. HAGIM’s policy on handling conflicts of interest is published online at www.ha-gim.com/rechtliche-hinweiserechtliche-hinweise.
The information contained herein is intended solely for professional clients or eligible counterparties. This information document is not intended for U.S. citizens or persons permanently residing in the United States, nor may it be distributed in the United States.